Highlights of Vietnam's banking industry

((Baonghean) - In 2016, Vietnam suffered many negative impacts from the external context, notably drought, natural disasters and global economic growth slower than forecast; However, overall, the country's economy still grew positively, with GDP growth for the whole year of about 6.21%.

The general growth momentum of the economy is gathered from the good growth momentum of the processing, manufacturing and service industries; Total consumer demand increased quite well, with retail sales of goods and consumer services (reaching 85.8% of GDP compared to 77.3% of GDP in 2015); Total capital supply for the economy increased by 15.1% compared to 2015; The stock market increased by nearly 20% and market capitalization reached 38% of GDP compared to 32.4% in 2015; Export increased by 6.8%, trade surplus of 2.68 billion USD...

Transaction at VietinBank - Nghe An Branch. Photo: HV

Contributing to those efforts and successes, in 2016, the banking industry basically completed the planned targets of controlling inflation below 5%, stabilizing the macro economy, supporting economic growth, ensuring system safety; and increasing the total means of payment appropriately.

The system of credit institutions in general achieved a capital safety ratio of 13% (the minimum level as prescribed is 9%) and fully met the ratios of payment capacity and the ratio of short-term capital sources for medium- and long-term loans as prescribed by law; kept medium- and long-term loan interest rates below 10% and bad debt below 3%...

Regarding credit, banks have made many efforts to improve credit conditions in the direction of favorable procedures, applying flexible and gradually decreasing interest rates for both mobilization and lending, in line with the goal of monetary policy management, focusing more strongly and balancedly on production and business sectors, especially the priority sectors and fields of the Government. Credit growth is in line with the direction and total outstanding credit for the whole year is estimated to increase by about 18.5% compared to the previous year.

The State Bank of Vietnam has also successfully and "happily" concluded the preferential credit package of 30,000 billion VND to support the purchase of social housing, ensuring the disbursement of signed loans at the preferential interest rates that borrowers have enjoyed and committed to in the signed loan contract.

In particular, following the direct direction of the Prime Minister at the Conference on Building Agricultural Industry on December 18 in Ho Chi Minh City, the State Bank will quickly research and complete to soon issue a favorable mechanism for a credit package worth 50,000 - 60,000 billion VND for the development of high-tech agriculture.

Regarding interest rates, in 2016, the State Bank of Vietnam has been quite active in implementing synchronous solutions to reduce lending interest rates, supporting the production and business activities of the economy in the spirit of: Trying to maintain the operating interest rate, supporting and reducing pressure on safety limits. In 2016, under the pressure of balancing the budget, about 280,000 billion VND of government bonds with a common term of 5 years were successfully issued with an interest rate of only about 5%/year compared to 6.5%/year last year.

The central exchange rate policy, first applied since January 4, 2016, has been playing a positive role in stabilizing the exchange rate, allowing the exchange rate to respond more flexibly and promptly to domestic and international developments; reducing pressure to sell foreign currency to intervene in the market and other speculative expectations.

The roadmap for restructuring credit institutions is continuing to be implemented as planned, reducing the number of substandard credit institutions and gradually improving the quality and competitiveness of the entire system and each member organization. Credit institutions are gradually applying governance standards according to international practices, improving operational efficiency, improving credit quality; stabilizing the psychology of depositors and investors. The monitoring data of the State Bank and bad debts of credit institutions have been made more transparent and updated.

The SBV’s management actions have been supported and highly appreciated by the Government and international organizations. International credit rating organizations have simultaneously upgraded and given better ratings to many Vietnamese banks in 2016.

According to the 2017 Vietnam Banking Industry Outlook Report by the international rating agency Fitch Ratings, which was just released in mid-December 2016: Vietnamese banks have improved their health. The credit structure has changed in the direction of reducing lending to inefficient state-owned enterprises and promoting lending through retail channels, helping to ease pressure on asset quality.

With the successes of 2016, the Vietnamese banking industry confidently enters 2017 with the key tasks that Governor of the State Bank of Vietnam Le Minh Hung emphasized at the online conference between the Government and localities at the end of 2016, accordingly: Continue to manage interest rates in 2017 flexibly, harmonize targets, ensure stability of the basic interest rate level and strive to reduce the medium and long-term interest rate level as directed by the Government, support macroeconomic stability, control inflation, maintain economic growth at a reasonable level.

Dr. Nguyen Minh Phong